Problem 4: Cournot Competition and Price-cost Margin.
The demand for a product
, and marginal cost is
= 36. The firms play a Cournot game. If there
are 2 firms in an industry, then the price in Nash equilibrium is
= 44. What is the Nash
equilibrium price if there are 3 firms in the industry?
Use the formula discussed in class,
is the number of firms, and
value of the elasticity of demand.
Problem 5: Stackelberg Cournot.
Two firms play a Stackelberg Cournot game. That is
firm 1 chooses
first and firm 2 chooses
second. Demand is
(a) What is the best response for firm 2 if
(b) What is the best response formula for firm 2 for any value of
(c) Given to answer to part (b), what quantity
should firm 1 choose to maximize profit?